Capstone Copper Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
October 31, 2024

There are 12 speakers on the call.

Operator

Good afternoon, ladies and gentlemen, and welcome to Capstone Copper's Q3 20 24 Results Conference Call. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Thursday, October 31, 2024. I would now like to turn the conference over to Mr.

Operator

Daniel Sampieri. Thank you. Please go ahead.

Speaker 1

Thank you, operator. I'd like to welcome everyone to KapStone Copper's Q3 2024 Conference Call. Please note that the news release and regulatory filings announcing Capstone Copper's 2024 Q3 financial and operational results are available on our website and on CR Plus. If you are logged into the webcast, we will advance the slides of today's presentation, which are also available in the Investors section of our website. I am joined today by our CEO, John McKenzie our President and Chief Operating Officer, Kachel Mahar our SVP and Chief Financial Officer, Raman Randhawa our SVP Risk, ESG and General Counsel, Wendy King and our SVP Technical Services, Peter Amelungsen, is also available at the end of the call.

Speaker 1

Following our brief remarks, there will be an opportunity for questions. Please note that comments made on the call today will contain forward looking information within the meaning of applicable securities laws. This information, by its nature, is subject to risks and uncertainties, and actual results may differ materially from the views expressed today. For further information on the risks and uncertainties pertaining to our business, please see Capstone's most recent filings, which are available on our website and on SEDAR Plus. And finally, I'll just note that all amounts we will discuss today are in U.

Speaker 1

S. Dollars unless otherwise specified. Now I'll turn the call over to John McKenzie.

Speaker 2

Thank you, Daniel. Good afternoon, everyone in North America and Europe, and good morning to those dialing in from Australia. We're pleased to present our Q3 2024 results and achievements. Starting with Slide 5. In Q3, our operations delivered consolidated copper production of 47,500 tons at consolidated C1 cash costs of $2.83 per pound.

Speaker 2

Very importantly, during the quarter, we had several major achievements at our mines in Chile. At our flagship Monteverde development project, we achieved commercial production levels in September. This is a tremendous accomplishment within 3 months of producing first concentrate from the plants. We also completed our first two concentrate shipments with the copper concentrate meeting all required specifications. At Montes Blancos, we undertook a 2 week shutdown to install the new equipments that will allow us to unlock the design capacity of the plant.

Speaker 2

Following these milestones and the Q3 results, we've noted that we expected to finish at the low end of our 2024 production guidance. We revised our C1 cash cost guidance to $2.60 to $2.80 per pound, mainly as a consequence of the ramp ups at Monteverde and Montes Blancos commencing later in the year than we had expected. On the corporate side, our net debt was largely unchanged at $751,000,000 as at September 30th. Our balance sheet is in excellent shape as we ramp up Monteverde ahead of our next phase of growth. During the quarter, we also provided our leadership succession plan that will take effect at our AGM in May next year.

Speaker 2

The announcement followed a thorough and orderly succession process to ensure continuity of leadership and continued success of the company. It has been a privilege to serve as the Chief Executive Officer of Capstone Copper since March 2022, and I'm thrilled to be nominated to the role of Board Chair at our next AGM. I was also very pleased to announce that Cashel will be appointed as our next CEO. I have every confidence in Cashel to lead the execution of our next stage of growth at KapStone, including our Monteverde optimized and Santo Domingo projects. Jim Whittaker will succeed cash flow as COO and this will also allow us to flatten our organizational structure with all mine general managers reporting directly to the COO.

Speaker 2

We also announced today that Gerald Annette has retired after 5 years with Capstone to spend more time with his family. Gerald has been an important contributor to Capstone's success over the past 5 years, and we thank him for all of his contributions and wish him all the best in retirement. Turning to Slide 6. Earlier in October, we released a feasibility study for our Monteverde optimized project. MV optimized is a capital efficient brownfield debottlenecking project that will expand the existing sulfide concentrator at Monteverde from 32,000 to 45,000 tons per day, leveraging the excess capacity in existing infrastructure.

Speaker 2

This project will bring on an additional 20,000 tons of copper per year for an initial capital of just below $150,000,000 implying a super low capital intensity of $7,500 per ton of copper equivalent production. This positions us to produce over 120,000 tons of copper per year at Monteverde for the next 10 years with cash costs of $1.80 per pound. Importantly, when combined with the release of our updated Santo Domingo feasibility study earlier in July, we have now defined the next transformational phase of growth for KapStone and our world class Monteverde, Santo Domingo District in the Atacama region of Chile. We see ourselves producing copper by these 2 processing centers in this well endowed district for many decades to come. Monteverde and Santo Domingo are separated by only 35 kilometers and we have identified multiple options to surface significant further value in the coming years.

Speaker 2

And with that, I'll pass over to Ravan for our financial results.

Speaker 3

Thank you, John. We are now on Slide 7. In Q3, we recorded copper production of 47,500 tons reflecting growth of 16% quarter over quarter driven by the initial production from the ramp up of MVDP. As a result of the ramp up, as expected, we have started to build up some concentrated inventory and some accounts receivable, which resulted in copper sales being below payable production levels by 1500 tonnes this quarter. That difference between payable production and sales equates to approximately $5,000,000 to $6,000,000 of EBITDA.

Speaker 3

LME copper prices during the quarter averaged $4.18 per pound, down 8% compared to $4.42 per pound in Q2. Our realized copper price of $4.24 per pound was slightly above the LME average as a result of our QP hedging program. We realized strong gross margins of $1.41 per pound or 33%. C1 cash cost of $2.83 per pound included maiden unit cost of $2.52 per pound from Manta Verde development project. In September, the MBD's sulfide posted cash cost were $1.83 per pound.

Speaker 3

When combined with the larger production volumes from MBDP, this will drive a significant reduction in our consolidated unit cost in Q4 and beyond. As John mentioned, we have increased our consolidated C1 cash cost guidance from for 20.24 to 2.60 to 2.80 per payable pound of copper produced. The cost increase is largely driven by production volume impact by the start of the MBDP and Mantos Blanco's ramp ups occurring later in the year than originally expected and the corresponding knock on effect to our unit cost. At Mantos Blanco's, we have also experienced a higher year to date spend than expect driven by additional maintenance plus extra materials and labor to complete the debottlenecking work to unlock the plant's nameplate capacity. Across the rest of the portfolio, our underlying costs have been fairly in line with our expectations.

Speaker 3

Turning to EBITDA, adjusted EBITDA in Q3 of $120,800,000 nearly doubled year over year and was down only 2% quarter over quarter despite the 8% decline in copper prices. Going forward, our financial results will be impacted by the achievement of commercial production at MBDP. The achievement of commercial production triggers a few items for Q4 financials, which include additional finance charges being expensed versus capitalized and the commencement of depreciation depletion on the MVDP capitalized cost. We expect our finance expenses to increase by $25,000,000 per quarter, which includes interest on shareholder loans. This includes both cash finance expenses like the interest on our debt, facilities and other non cash finance charges.

Speaker 3

Similarly, we expect our annualized depreciation to increase by approximately $80,000,000 dollars which is mainly calculated on a units of production basis and some straight line amortization. Moving on to Slide 8. On the left hand side, we summarize our available liquidity, which as at September 30, 2024 was $516,000,000 which includes $139,000,000 of cash and short term investments and $377,000,000 of undrawn amounts on our $700,000,000 corporate revolving credit facility. Of note, in the quarter, we commenced repayments on our project finance and cost overrun facilities at Manco Verde in conjunction with the ramp up of operations. Our net debt of $751,000,000 is largely unchanged from the prior quarter and we are now entering the next phase of deleveraging with the ramp up of MVDP to full production rates.

Speaker 3

The chart on the right hand side illustrates our EBITDA sensitivity at various copper prices. We are now in the cusp of the light blue bar, which represents EBITDA of close to $1,000,000,000 to $1,300,000,000 at copper prices between $4,000,000 to $4.50 per pound with MBDP at 4 run rates. The EBITDA generation associated with Manco Verde will enable us to focus on generating free cash flow to delever our balance sheet with a pathway to below 1x net leverage at spot copper prices. This provides a strong platform from which to advance our future growth pipeline in terms of Manco Verde Optimized and Santo Domingo. Now I'll hand it over to Cashel for the operations review.

Speaker 4

Thanks Ron. We're on Slide 9. Pinto Valley produced 13,980 tons of copper to C1 cash costs of $2.92 per payable pound during Q3. Throughput averaged 45,000 tons per day in the quarter, which was below our expectations driven by unplanned maintenance. For the last few quarters, we had seen positive progress and higher throughput after kicking off an asset integrity program.

Speaker 4

The 3rd quarter showed that this initiative is required to improve the reliability of the plant and it continues to be implemented. Despite these unplanned interruptions, Pinto Valley is on track with respect to the guidance we provided at the beginning of the year. Moving to Slide 10. Bozeman Mine delivered another solid quarter producing 6,025 tons of copper at C1 cash cost of $1.82 per payable pound. Those amendments has remained very consistent despite rolling out a higher volume of cut and fill mining methods this year, in addition to the operation of the paste backfill plant.

Speaker 4

Our Mantos Blancos asset is highlighted on Slide 11. Total sulfide and cathode production yielded 9,974 tons of copper at a C1 cash cost of $3.41 per payable pound. While production and costs were similar to what we've seen in the last couple of quarters, they do not tell the whole story of what was a very significant quarter at Mantos Blancos. In July, we concluded a 2 week shutdown to tie in key pieces of equipment that we identified were required to ensure more consistent throughput at the back end tailings handling area of the plant. On the right hand side of the slide, you'll see the new surge tank and 4th positive displacement pump.

Speaker 4

In August, the plant ramped back up and now and starting from the middle of that month, we averaged over 18,000 tons per day, which is a significant improvement over the past few quarters. These modifications now completed are allowing increased plant utilization as designed. We expect to continue with higher output in Q4, which will increase copper production and significantly lower our unit costs. Also of note in Q3, recoveries improved to a more normal 82% from a low of 73% in Q2. After a short term localized geotechnical issue in Q2 impacting mine plan sequencing of grades and recoveries.

Speaker 4

Copper grades are also expected to improve in the 4th quarter back into the 0.8 to 0.9 range from sub 0.8 in the last two quarters. Overall for the year, production and costs at mantos blancos are trending unfavorably relative to the guidance ranges we provided in January. However, our confidence levels at Mantos Blancos today are much higher than they have been at any point over the last 2 years and will continue to increase daily production rates through to the end of the year. Now on to Monteverde on Slide 12, where it was a transformational quarter. Total sulfide plus cathode production yielded 17,481 tonnies of copper, a significant increase driven by a meaningful 8,139 tons from the Mento Verde development project.

Speaker 4

After producing first concentrate near the end of Q2 in June, we ramped up quickly and efficiently in July and achieved facility practical completion with our construction partner, Osenco. This followed the achievement of 7 days operating near nameplate capacity of 32,000 tonnes per day. This prompted a 2 week shutdown at the beginning of August. During that time, we took over operation of the plant and all of the OEMs were on-site to provide their final sign off on warranties for all the equipment. Post the shutdown starting in the middle of August, we again ramped up efficiently and achieved commercial production in September.

Speaker 4

Our quarterly average throughput, of course, includes the downtime and ramp up periods, but in September we averaged 26,200 tons per day. Braze reconciled well with the mine plan and block model, posting 0.71 percent copper in the quarter. We were excited by the recoveries we have seen so far as well. After normalizing for work in process inventory builds, we have implied metallurgical recoveries of around 78.2% in the quarter and above 80% in August September. Additionally, we delivered our first two concentrate shipments, which met all required salable specifications.

Speaker 4

This was a significant milestone. We are very proud of the accomplishments to date by the project and operating teams. Anto Verde is poised to produce more consistently and reliably through the Q4. Turning to Slide 13. About a month ago, we released the results of a feasibility study for our mental Verde optimized project.

Speaker 4

This is a capital efficient and near term brownfield growth opportunity at Capstone that leverages available excess capacity in our crushing and grinding circuits at our Monteverde concentrator plant, providing the option to increase throughput from 32,000 to 45,000 tons per day plant feed at a capital efficient cost of $146,000,000 On Slide 14, the plan presented for MV Optimize represents the next major growth in the evolution of our world class Manfredo Santa Domingo District. MV Optimize will of over 120,000 tons of copper and 40,000 ounces of gold per year over its 1st 10 years. On the bottom right of the page, you can see that the study outlines an NPV at 8% discount of anywhere from $2,900,000,000 at $4.10 per pound copper to close to 4,500,000,000 dollars on a 100 percent basis at just over $5 per pound copper. Turning to Slide 15. We've highlighted some of the key differences from the new MD Optimize study.

Speaker 4

Relative to the last technical report release for Manto Verde development project. First, the mine life has been extended to 25 years and it's important to note this has also been done without any additional drilling as Manto Verde hasn't seen a comprehensive exploration program since before 2019. This additional mine life and throughput is enabled by an increase in the total sulfide reserve by 67% with now 394,000,000 tons classified as reserve. The resulting life of mine yields a slight decrease of head grade and an increase in stripping requirements. Opportunity remains though I'm sorry, opportunity remains through exploration drilling and what we at Capstone view as an excellent exploration prospectivity along the Akapatacama Fault for higher grades and potential mineral that can be accessed with less stripping.

Speaker 4

And as previously mentioned, the plant throughput is to be increased from 32,000 to 45,000 honeysore per day. In the bottom of the slide, we profiled the larger production profile, both over the 1st 10 years and over the extended life of mine. In the middle, we highlight the attractive cash costs with first 10 years at $1.82 per pound of copper and life of mine cash costs around $2 per pound. The increases in sustaining and deferred stripping CapEx relative to the old plan incorporate the larger operation with more tonnies moved and higher throughput, while also being refreshed for the inflation that we have seen since the 2021 technical report was released. Turning to Slide 16.

Speaker 4

The NVO study outlines an initial expansionary cost of $146,000,000 This implies a very low capital intensity of 7,500,000 per tonne of annual copper equivalent production and of course compares very favorably to other projects profiled. Santo Domingo, which is also shown on the slide also compares very favorably. There is no better place for us to build another mine than 35 kilometers down the road from where we just successfully completed construction at the Manco Verde development project. Turning to Slide 17. We show the combined MBSD District production potential on the left hand side with the 1st 3 years of combined production averaging around 250,000 tons of copper at a very attractive cash cost.

Speaker 4

Over time, we plan to further augment these base case numbers with additional opportunities including processing Santo Domingo Oxides at Monteverde, continuing to explore the district to improve our understanding of the long term potential and assessing the viability of byproduct cobalt production. On the right, you can see the various copper occurrences identified to date in the district. We're very excited by the potential for future exploration on our own properties as well as the opportunity for other sterilized deposits to eventually become future feeds for our processing centers in the district. Now over to Wendy King for the sustainability review.

Speaker 5

Thank you, Kashell. We're now on Slide 18 with a review of our sustainability highlights for Q3. At Santadomingo, we opened a community engagement office to keep the community informed and engaged on developments as the project ramps up. At Mantos Blancos, we celebrated the 20th anniversary of our partnership with the Delta UCN program. Annually, the education program is offered to nearly 500 elementary and high school students in the Anafagasta region.

Speaker 5

This year, the program was expanded to provide mental health support to more than 100 university students. We're very proud of the positive impact this collaboration has had over the years on the education of the young people in the region. Also in Chile, Capstone Copper received the 2024 Best Midsized Company of the Year award from Tsunami, the Chile Mining Association. A key aspect of the award is the recognition for Capstone's ESG practices and community engagement. At Cozamin in Mexico, we published a biodiversity handbook.

Speaker 5

This is based on a site monitoring program where we worked with 6 biologists to gather and classify the data over 2 years. During the quarter, Cozamin also partnered with its contractors to replant 2 hectares of land with native species. And at Pinto Valley in Arizona, we replaced 3 diesel fired engines with electric units, with further plans to replace 2 more units in Q4 as part of our PV electrification project. This program will provide Scope 1 reductions for carbon emissions. And with that, I'd like to pass it back to John.

Speaker 2

Thanks, Wendy. Turning to Slide 19. We've outlined our sector leading growth plans and some of the additional upside within our portfolio. As can be seen, we expect MVDP at its full run rate to bring us to a consolidated annual production level above 250,000 tons of copper at costs in the low $2 per pound range. From there, the Monteverde optimized plus Santo Domingo projects would take us to around 400,000 tons of copper production per annum at even lower cash costs.

Speaker 2

We intend to proceed with Monteverde optimized following the receipt of a DIA permit amendment. We filed for the DIA permit earlier this year and expect receipt in the first half of twenty twenty five. We plan to finance this project through internally generated cash flows. At Santo Domingo, we're progressing with the assessments of the optimal financing structure for the project. We're looking at this in a very similar manner to what we were able to achieve at Monteverde.

Speaker 2

Included in this, we've recently commenced a process to bring in a partner at the minority level. We're also advancing discussions with respect to a project finance facility, which we see forming a part of the financing package for Santo Domingo. Before a potential sanctioning decision at Santo Domingo, we also want to see all of our assets operating at or near full production levels and our consolidated net debt to EBITDA at below one times. And of course, we will also be mindful of the overall macroeconomic environment. As such, we believe we will enter a sanctioning window for Santo Domingo later in the second half of twenty twenty five.

Speaker 2

Beyond these projects, we further upside across our portfolio with another low risk brownfield expansion opportunity at Montes Blancos, additional flexibility in the MVSD district to unlock more copper and potentially byproduct cobalt production and the potential developments of another major copper district around our Pinsa Valley mine in Arizona. Turning to Slide 20. We highlight the timelines for some of the studies that I've mentioned and for other milestones as we execute on our growth plans. This is a significant year for KapStone and the Q3 marks an important step in the transformation of our business with tangible delivery on our peer leading growth. Over the past few months, our operations in Chile exhibited meaningful milestones at both our flagship development project, where we achieved commercial production and at Montes Blancos, which is now enabled to deliver its nameplate capacity.

Speaker 2

We expect the Q4 to be our strongest of the year, providing a glimpse of the future Capstone with a larger production base and lower unit operating costs. At Capstone, we're now extremely well positioned to become a leading long life and low cost copper producer, playing an important role in supporting the world's decarbonization efforts. With that, we're now ready to take questions.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer Your first question comes from the line of Araswal Kedal from Scotiabank. Please go ahead.

Speaker 6

Thanks and good evening. And maybe I could start just by congratulating both John and Gerald on their retirements and congratulations to cash flow on the new role. I wanted to focus on obviously the Mano Verde sulfide project. You've been operating out for a couple of months. Can you give us are you seeing any area of the operation whether it's mining, crushing, grinding, flotation, etcetera, that you are seeing any concerns that could limit your ability to ramp up or achieve a consistent, call it 32,000 tons a day by the end of Q4?

Speaker 6

Just wondering if there's any area where you see some risk right now?

Speaker 2

Yes. Hi, Ariston. Thanks for that question and thanks for the congratulations. Although I would say my retirement is intended to remain pretty closely involved in the business. So you're going to be hearing more.

Speaker 2

So I'll be passing this across to Cassel for a more granular response on that. But just from my perspective, I've been involved in quite a number of mine ramp ups. I've been extremely pleased with what I've seen at Munseverado to date. The equipment has been, I'd say, overdesigned in pretty much every area. We've been able to run the plants at rates above the design capacity for sort of many continuous days and without any bottlenecks appearing.

Speaker 2

So obviously, there's work to be done on making sure we get ultimate sort of operational continuity and getting our operators trained up to operate the equipments well. But when we look at it from the mine, the mine is operating really well. It's the reconciliation between the block model and what we're actually mining is spot on. The performance of each piece of equipment, whether it's sort of crushers or molds or flotation, I was just talking to Peter and Luxon earlier today. He was just amazed at how we haven't had any issues downstream with things like filtration and thickening, etcetera.

Speaker 2

Tailings dams in place, the diesel plant has ramped up really nicely. So at this point, we certainly from my perspective, I'm really pleased with what I see. And I'm looking at this through 2 lenses, one of which is our current ramp up and the other of which is the subsequent Montserveta Optimize project and looking to further wind this equipment up to actually do 45,000 tonnes a day rather than 32,000 tonnes a day. And I've got to say, I'm really encouraged there as well. We're not seeing anything that makes us pause in terms of the capability of the plant to ultimately get to that level.

Speaker 2

But, Kassel, can I ask you just to sort of add to that?

Speaker 4

Yes, sure. So obviously, everything John said is correct and it's very encouraging. No ramp up goes without interruptions and we've had interruptions. But fortunately, they've been ones we've been able to mitigate. Early on, we had a failure in a motor, but we had spare motor.

Speaker 4

That motor is imminently the spare repaired to be delivered back soon. We did have some constraints in our cleaner circuits and we took a minor downtime to be able to address that by increasing pumping capacity and pipe diameters. It was actually restricting some of the grade we could put through. So now fortunately we can put through the higher grade that Manco Verde has to offer. So I'd say they're normal issues.

Speaker 4

And then now we're dealing with minor issues. It's optimization of reagents. It's setting control parameters for operators. It's modifying operator procedures so that they fit better with, Bento Verde itself. Things like the desal plant has now been stress tested and can supply the total amount of water we require.

Speaker 4

All of the sand production is going quite well at the tailings dam. So knock on wood, it's been going really well. And we think that we've been driving out the variability in the process. And then this brief modification I said to the cleaners, we see ourselves well capable of achieving that full nameplate production before the end of the year consistently.

Speaker 6

That's excellent. And today being Halloween, can you give us an early preview of how the month of October potentially went there just with respect to average throughput and maybe recoveries?

Speaker 2

Cash flow, do you want to answer that?

Speaker 4

Yes. I'm not going to give perfect numbers. There's still today to be complete. So but it's going really well. We're in the high 20s.

Speaker 6

And recoveries.

Speaker 4

So it's going really well. Yes. So recoveries are going well too. So there was we had what we call the buildup. We had to build the inventory within the bedding of the thickener and the cracks and crevices.

Speaker 4

We also had those issues, I said, with the cleaners. So we actually have a storage pond on-site that we've got to reprocess some concentrate. So our metallurgical recovery, has been in the low 80s right now this month. And prior to that, we were just near 80. So it's going really well.

Speaker 4

And like I said, there's some optimization on the cleaner rougher circuits, some reagent optimization and all those things are being done now. So it's nice to be able to not have to focus on throughput and to be able to focus on metallurgical characterization, so to speak, and optimize that now going forward into Q4.

Speaker 6

Perfect. And just another quick one, if I could. Just I didn't see anything in the release on CapEx guidance for this year. Is the previous number, the 470,000,000 dollars is that still valid at this point or is that changed?

Speaker 3

Yes, it's largely unchanged. Yes, sorry, John. Orest is largely unchanged. We had authorized a bit of expiration that we had kind of noted earlier in the year. Thank you.

Speaker 2

Thanks, Orest.

Operator

Thank you. And your next question comes from the line of Ralph Profiti from 8 Capital. Please go ahead.

Speaker 7

Thanks, operator. Thanks, Steve, for taking my questions. Just wanted to get a little bit more specific on recoveries, cash flow at Mantel Verde. Are you now through the in process inventories and into the run of mine ore? And just thinking about how we get from sort of 80% to the 88% design rate?

Speaker 7

And would that 88% be sort of like a year end 2024 target? Is that conceivable?

Speaker 4

Yes, I think it is conceivable. In my experience, we have Peter on the line here, but I would say in my experience, there's always a sequence to ramp up. There's mechanical, there's warranty, then there's throughput, then there's optimization on recovery. And we're really near the end of the throughput. Obviously, we had the facility practical completion where we had consecutive days at nameplate throughput.

Speaker 4

Now we're working on operational controls. But we have Peter on the line, so maybe Peter can talk to the process of getting to the desired recovery.

Speaker 8

Yes, sure. Thanks, Cashel. And just before I'd like to echo John and Cashel's comments that I'm very happy with what I'm seeing on the performance of the plant to date, both in terms of tonnage and recovery. The recoveries of about 80% to 82% right now are a combination of losses in the roughing circuit and then the cleaning circuit. The cleaning circuit should be running for a well designed, well operated operating plant should be somewhere around 98% and most of the losses should be in the roughing circuit.

Speaker 8

In our case, however, because of the constraints that we had in the cleaning circuit, the operators have had to slow down the cleaning circuit, producing higher grade concentrates and sending more copper out to the cleaner tails. And as a result, the recoveries in the cleaning circuit have generally been around about 90%, 88% to

Speaker 3

92% in that range, much lower than what we would expect after

Speaker 8

we debottleneck that. Percent in that range, much lower than what we would expect after we debottleneck that. The changes were made roughly late last week. Earlier this week, we put in the new pump, so we still haven't seen the final results. The operators are going to require some time as well to learn how to operate the circuit at the higher throughput rates.

Speaker 8

But in general, with what I'm trying to say is that if we were to have a recovery issue around the design, we would generally see symptoms of that in the roughing stage and we're not seeing any of that. So the rougher recoveries are above 90% and we have lots of residents time. We have about 34 minutes in the roughers and about 35 minutes in the cleaner scavenger. So overall, I'm very, very encouraged by what I'm seeing from the metallurgical data on a day to day basis.

Speaker 7

Great. Thanks for that commentary, Peter. And Pinto Valley, a bit of a step back in Q3 and I've seen the presentation we're now into its 50th year. If Raman wants to chime in here, how are you thinking about sort of sustaining CapEx going forward? Historically, I see a run rate sort of $50,000,000 $60,000,000 per year.

Speaker 7

Just wondering as that operation ages, how we should be thinking about that part of the equation?

Speaker 3

Yes, Ralph, good question. I mean

Speaker 2

Well, I think what I would suggest is maybe, Ashwin,

Speaker 3

if

Speaker 2

you want to just start off just by introducing what we're doing in terms of the asset management framework because I think Raman after that I'd ask just to speak to the actual kind of sustaining CapEx. But to me it's more about actually having the rights preventative maintenance program and the right asset management framework in place to make sure that that equipment operates sort of at or above design. So maybe if I could just ask Kash, I'll just comment briefly on that and then skip across to Raman.

Speaker 4

Yes, Ralph. What we're implementing is an asset management framework. And the reason is 2 of our mines have elderly infrastructure, we'll call it, whether it's sort of outdated electrical components, conduits, tiring, steel, fatigue, even down to where you sort of have pipes and pipe brackets require replacement. And what we were seeing over the last few years is that Pinto Valley, we were getting unplanned events of breakdowns of some of these structural, electrical, mechanical components that are critical to the throughput consistency. And so we when you take these unplanned events, they're really the ones that are conspiring to Pinto Valley missing targets periodically.

Speaker 4

So we started last year. We brought in a team that's implementing at all our mine sites an asset management framework. It's got 15 components in it that address all the different components of asset integrity, asset management and maintenance, everything sort of from the procurement chain right through to inspection, repair, time to repair, all those types of systems and processes. And we've started implementing it and we got some really quick wins, which was great at the start of the year out of Pinto Valley and we were achieving much higher production with less unplanned. But we had a couple of events in the last quarter that were we would call them one off events.

Speaker 4

We had a principal conveyor that moves the ore from our primary crusher to our tertiary crushers system. And that conveyor failed the belt split. And it turns out that it was a splice that was done a year before and the vulcanization was found to be of poor quality. So it's about we want to have a system set up that we have good evaluation on these systems and processes. That was quite a it wasn't that it was catastrophic that it broke anything.

Speaker 4

It took a long time to bring that back online over a week and we lost those production days. So those are the things we're trying to drive out of the system now are those unique events by having regular proper inspections, more modern techniques and systems brought to bear on assets that ostensibly are 50 years old, as you mentioned. So those are the things we're doing to improve it. And so with that, I'll hand it off to Raman for your original question around the CapEx.

Speaker 3

Yes. The CapEx number you mentioned, Ralph, kind of that range. We're in that 70 to 80 for the next few years as we continuously reinvest in the place and upgrade different components of the place over time.

Speaker 7

Great. I appreciate that. Thanks to the team for their answers. And let me also echo the congratulations on the leadership transition. Very encouraging to see the continuity of the strategy.

Speaker 7

Thanks very much all.

Speaker 2

Thanks, Ralph.

Speaker 3

Thank you.

Operator

And your next question comes from the line of Craig Hutchison from TD Cowen. Please go ahead.

Speaker 9

Hi, good afternoon, guys. I wonder if I could ask a similar question that Horace asked Monteverde, but ask at Montos Blancos. How are things kind of progressing here in October with respect to throughputs and the pickup in grades that we were expecting? Thanks.

Speaker 2

Thanks, Craig. And I'll pass that straight across to Cashel just to talk about.

Speaker 4

Yes. It's a similar story, Craig, to Pinto Valley in that some of the components are aging and we are also implementing an asset management framework and we've already been seeing the benefits of that. I mentioned in my script that we just reviewed that we were over 18,000 tons a day for August, September. And I would echo we're doing better in October than we had in August September. So that's very encouraging.

Speaker 4

Another very encouraging thing is obviously recoveries are improving. So that's very encouraging. And then the other one is we had a sort of in the start of the year, we had a small geotechnical issue in the mine that forced us to resequence the mine and had us going to slightly lower grades and that's solved also. So the work we did with the shutdown of the 2 weeks to be able to remedy the back end by putting in an extra positive displacement pump because really the 3 pumps were required to be online 100% of the time. So we needed 1 in rotation to maintain one of the other 3.

Speaker 4

So now we have 4 pumps. So 3 can be online all the time. So we're no longer restricted by our what we see is, of course, is when you remedy 1 bottleneck, there is something else becomes the next bottleneck. And so we do have some improvements in our hydro screens and cyclones on the course fraction of the tailings. But we do see where we are now that we will hit several days in a row at the nameplate capacity that we speak about for that particular mine.

Speaker 4

And so we're sort of what we see is incremental improvement week over week, month over month, where we're approaching now in the high teens. Like I said, we're sort of steady at 18,000. So we believe we've got a very robust plan to get us to that nameplate capacity to the start of the year, the New Year. So we're pretty pleased with the progress we've made. I think some of the modifications we've done have been impactful and transformational there.

Speaker 4

And now the team can concentrate on some of the smaller items, things like recovery to be able to bring that up and improve on that end of it.

Speaker 9

Okay, great. Maybe just a follow-up question for me. Raman mentioned about the target to get below one times leverage before, I guess, you guys make a decision on Santo Domingo. Do those leverage targets also apply to the Monteverde optimization project?

Speaker 2

Yes. I'll let Raman sort of comment in more detail about that. But overall, I think, Craig, we have a relatively sort of conservative approach to how we manage our balance sheet, how we finance. We're not inclined to put the company at risk by rushing forward with any capital projects that are sort of potentially going to stress our balance sheet in any way. Monteverde Optimize is a fairly specific situation because to an extent, that operation is a little bit ring fenced by the project financing facility that we have in place.

Speaker 2

Now what I can say is in the discussions we've had with our project financing banks, they're actually tremendously enthusiastic about us going ahead with Monteverde optimized. And so some of the things that are in our current covenants like cash sweeps, they seem very willing to review those with a view to instead of cash sweeps reinvesting sort of some of that cash flow into Montevideo optimized instead. But overall, when we look at our sort of leverage levels, I think we're pretty quickly going to be coming to that one times net debt to EBITDA during the course of next year. So I think regardless, we should be in a position by the time we move forward with Monteverde optimized that we're sort of certainly on a leading basis, we're at that ratio, whether we're on a lagging basis, Raman has probably got a better insight into. Raman?

Speaker 3

Yes. I mean, I agree with everything John said, Craig. And I mean, when you look at MB optimizers, we'll work for you with the banks in terms of amendments on the and ability to reinvest. But when you look at Manitoba Verde in a 2025 on a full run rate basis, like, I mean, you're talking operating cash flow $450,000,000 $500,000,000 less than stripping. So you can tell just based on the cash flows at the site level, there'll be sufficient to kind of spend that 146 over a 12 month period and obviously it's got a very quick payback.

Speaker 3

So, and look, doing that in step while we're doing the financing for San Antonio, obviously just improves our EBITDA and helps actually get lower get to that one times even faster if you think about it that way.

Speaker 9

Great. Thanks guys.

Operator

Thank you. And your next question comes from the line of Adam Baker from Macquarie.

Speaker 10

John and team, thanks for the call. Just wondering if we could get an update on how the Santo Domingo minority sell down process is going and when we should receive an update on this? And maybe if you could give us a feel for the type of parties who in the data room there? Thanks.

Speaker 2

Yes, certainly. So we've it's relatively recently that we have released the actual technical report, the full technical report for Santo Domingo. So obviously, we couldn't really progress the process until that was available for parties to look at. So that's been done. I've been very pleased with the sort of interest and enthusiasm that's been shown of we've got now many parties in the data room.

Speaker 2

I was across in Japan last week together with our Head of Corporate Development. We met with quite a number of Japanese parties that are currently in the data room. I think those are very constructive discussions. Something which is also interesting is just the sort of emergence of interest of a lot of the sovereign wealth funds in the Middle East. Again, we've got quite a number of parties from there who are in the data room.

Speaker 2

And then a bunch of others, I would say. So there's been a wide ranging interest. At the end of the day, we need to look at all these parties. We need to sort of consider what gets put on the table. But we also need to consider that this will be a partnership for sort of 30 or 40 or 50 years and that we need to make sure that there's good strategic alignment between ourselves and whichever party is finally selected to move forward with us.

Speaker 2

So I think there's good progress, but I think it's probably going to be a couple of rounds. I think we probably looking towards sometime in the first half of next year to be able to provide you with any sort of meaningful update.

Speaker 10

That's clearly. Thanks for that. And maybe just one on the BHP Copper Cities project. From memory, the last update was the exploration agreement has been to September 2024. Could you maybe remind us what the next steps are there?

Speaker 2

Yes, certainly. I think we've extended that as far as I recall to July 2025. So that carries on. We're currently jointly doing some studies in terms of what the kind of optimal district looks like. And those studies need to be concluded before we can then kind of move from there into the commercial conversations.

Speaker 2

But I think proceeding very well at this point.

Speaker 10

Thanks, John. I'll hand it over. Cheers.

Speaker 2

Thanks, Adam.

Operator

Thank you. And your next question comes from the line of Delton Baretto from Canaccord Genuity. Please go ahead.

Speaker 6

Thanks, operator. Good evening, everybody. And Gerald Cashel sorry, John Cashel, congratulations. And also to Dan for stepping into Gerald's very big shoes. Most of my questions have been answered.

Speaker 6

Just one for me, maybe for Cashel. There used to be some talk some time ago about the new tailings facility at Pinto Valley and how the water reclaim system there would unlock debottlenecking up to 70,000 tons per day. I'm just wondering where that stands right now. Thanks.

Speaker 2

Ashkel, over to you.

Speaker 4

Yes, sure, John. Yes, we're working through designs there. I would say that it's probably something early first half of next year where we'll be in a position where we can disclose our new life of mine plans at Pinto Valley for a base case. And then some of and then that too, we'd be able to align some of the optionality that's available to us at Pinto Valley. So you're quite correct that a new tailings dam could offer the opportunity for reclaimed water.

Speaker 4

It could also give us the opportunity to upgrade the horsepower in the current milling system. By doing that, then the circuit would be capable of more throughput. We know we have the capacity in the crushers as installed already. So there is all of that opportunity and those are the things we're sort of working with. It's actually connected with the work that's being done for the Copper City's opportunity also because really to unlock the greater district, what you need is more capacity, because most of the ore in the region is of the same grade between 0.3 and 0.35.

Speaker 4

There's available in resource close to maybe 2,000,000,000 or 3,000,000,000 tons available in the district. And so there are many different iterations between ourselves and BHP we're looking at and our base case is to optimize Pinto Valley itself.

Speaker 6

Thanks, Kash. That's actually a good segue into my follow-up question. So as you do think about the broader district and as you go through the asset liability program, Are you comfortable with the Old Pinto Valley Mill eventually being sort of the base case or at some point in time you think you'll need a new mill?

Speaker 4

It's a great question. It's one we discuss a lot. Having a mill is the best asset and fixing that mill is the best asset. So I suspect in all the cases that that mill in one form or fashion will be utilized. There's all sorts of permutations.

Speaker 4

I don't know which one is going to win in the race. But you could see yourself if you wanted to increase capacity to over 100,000 tons, you could simply put a SAG mill in front and then utilize these ball mills and maybe then use some of that excess crushing you have to be able to perpetuate some of our sulfide leaching, for example. So there are a number I think the guys had between 10 15 different options that they were sorting through. The other one is building a completely new complex closer to sort of the Copper Cities resource. So there are just so many different options and that's the work that's being done is that trade off study level, PA scoping level such that we are choosing the best using several criteria, execution risk is very important also, permitting risk is very important, water is very important, like you said new tailings facilities is very important.

Speaker 4

So all these things are being considered in there. But we're evaluating all those options.

Speaker 6

Got it. Thanks, Kashif. That's all for me.

Speaker 2

Thanks, Sasha.

Operator

Thank you. And your last question comes from the line of David Ratcliffe from Global Mining Research. Please go ahead.

Speaker 11

Hi, good morning, good afternoon, everyone. So my question is a follow-up on mantas Blancas. I'm wondering if the delays you've experienced and the learnings from those impact on the thoughts for Phase 2 project in the current study. So I mean, at this stage, it sounds like you're still confident you can get to capacity with the recent works. But do you think that Phase 2 needs any additional works to the original scope to improve performance redundancies going forward?

Speaker 2

Yes. David, I'll give a brief comment and then just pass across to cash flow. But ultimately to get from 20,000,000 up to somewhere between 27,301,000 tons a day, we need to we've got an existing plant. So we need to understand exactly where the bottlenecks lie. Now what we do know is that we've got significant surplus crushing capacity.

Speaker 2

We've certainly got adequate milling capacity to get us to between 27,301,000. So it's really sort of downstream from there that we need to properly identify where the bottlenecks lie. And so, until we've actually got the operation running at its sort of steady state current sort of nameplate capacity, it's not optimal to be trying to define sort of exactly what the best engineering is to move it to that next stage. So we know we have the sort of resource base to support this growth. That's in fact the optimal throughput rates today is probably somewhere between 27,000 and 30,000 tons a day.

Speaker 2

But I think at this stage, we really just want to be running steady states at design. And from that, we can then we can push the various parts of the system to be able to see where exactly did the bottlenecks lie and what is the most efficient way of spending capital to get us to that next sort of step upwards and whether that's best done in one step or in multiple steps. Kassel, have you got anything you'd like to say to that?

Speaker 4

No, I think you covered it, John. Thanks.

Speaker 11

Okay. Thank you. I'll pass it on.

Speaker 2

Thanks, David.

Operator

Thank you. And there are no further questions at this time. I will now hand the call back to Mr. John McKenzie for any closing remarks.

Speaker 2

Thanks, operator. So we look forward to welcoming some of you to our operations in Chile in a few weeks' time for our analyst and investor site tour. After that, we'll update you again in February with our Q4 results. Until then, stay safe and feel free to reach out to Daniel or Michael if you have any further questions. Thank you for your continued support and have a good day.

Operator

Thank you. And this concludes today's call. Thank you for participating. You may all disconnect.

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Earnings Conference Call
Capstone Copper Q3 2024
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